Economist: LeBron is "getting hosed," should be making closer to $40M per year

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Economist: LeBron is "getting hosed," should be making closer to $40M per year

LeBron James is arguably the best player in the NBA. His salary is $17.5 million a year. He's worth much, much more.

"He's getting hosed," says Kevin Grier, an economist from the University of Oklahoma.

LeBron used to play for the Cleveland Cavaliers. When he left, the value of the team fell by tens of millions of dollars — and the value of his new team, the Miami Heat, rose by tens of millions. The economists I talked to said LeBron should be making closer to $40 million a year.

James is profoundly underpaid because there is nothing resembling a free market for NBA players. And, weirdly, this is good for LeBron. (It's also good for weaker players, and for team owners.)

There's a "salary cap" in the NBA, which limits the total amount each team can pay in salaries. This reduces the amount top players make, and boosts the salaries of mediocre players.

On top of that, the NBA draft means that rookies have to play for whatever team drafts them (or not play in the NBA at all). And there's a limit on what rookies can be paid.

Imagine if other fields were set up this way. You're the best young software engineer at MIT, and instead of getting hired for an insane starting salary by Google, you just put your name in a pool with other engineers. The worst companies in America draw random numbers and you get a letter saying you've been hired to work in the IT department at Best Buy.

Now all these rules are all laid out in the collective bargaining agreement between the owners and the players. Why would the players want this system? Because most players are not LeBron James.

"The union votes on the contract by majority rule," Grier says. "The guy in the middle is the crucial voter."

The salary cap means that some of the money that would otherwise go to LeBron goes to the guy in the middle.

Another reason LeBron's teammates vote to hose him: They want the league to be competitive.

The salary cap makes it impossible for rich teams to hire all the superstars. That means even teams in smaller markets have a shot at greatness, which draws more fans to support those teams. More fans means more revenue for the league as a whole — and that means bigger paychecks for the players.

And this, Grier says, is why Lebron James has a reason to support the system. Playing in a more competitive league helps him make more money in other ways.

"If he was a three-time Olympic decathlon champion, he would in no way be making nearly the amount of endorsement money that he's making," Grier says.

To earn those tens of millions of endorsement dollars, Lebron needs passionate fans of professional basketball. For that to happen, Lebron needs good teams to play against, even if it's costing him over $20 million a year.

The endorsement angle is interesting. According to Forbes, for instance, baseball's "ten top-earning players will make nearly $250 million total during 2012 from salaries and endorsements. On-field pay makes up 90% of the pie." [Source].

But is the difference in sources of compensation between baseball players and basketball players really that closely linked to their respective sports's divergent approaches to salary cap/revenue sharing? In other words, is basketball's parity (or apparent parity) and baseball's lack thereof really what's driving this? Would the lack of a cap hurt players more than it would hurt owners?

i agree. nba should have no salary cap and have free market. so players can play with the players they want and to play for the franchise they want without having to worry about salary restrictions. FREEDOM

i agree. nba should have no salary cap and have free market. so players can play with the players they want and to play for the franchise they want without having to worry about salary restrictions. FREEDOM

Ironically, the salary cap system has in many ways facilitated the formation of super teams. Remove the cap and install a pure free market or quasi-free market (e.g., remove the cap on individual player salaries but leave the punitive team luxury tax thresholds in place) and I doubt Micky Arison (or any other owner) would be able/willing to afford a team of LeBron, Wade, Bosh, etc. (absent, of course, substantial financial sacrifices by the players).

As a Raptors fan I'd obviously be for a free market system with no cap. I'm tired of these small market teams getting lucky all the time especially when I pay a fortune for tickets and they pay the 'soft' prices.

Lebron is clearly underpaid. That is a paradox not easily explainable.

Anyway you slice it, Lebron is giving 2x to 3x the value to the league than he gets back. It's true he does need the league, but in a less safe league where foolish owners could go busto and where some teams were more dominant, Lebron would likely be even MORE valuable, not less.

Obviously he is underpaid, just for the fact of how much money he brings in with fans loving him and companies trying to market him.

A lot of CEOs are "underpaid" its the way of business. Because if someone really loved their job and cares about what they do and try everything in their power to improve that business and then succeed that person will always be underpaid.

Ironically, the salary cap system has in many ways facilitated the formation of super teams. Remove the cap and install a pure free market or quasi-free market (e.g., remove the cap on individual player salaries but leave the punitive team luxury tax thresholds in place) and I doubt Micky Arison (or any other owner) would be able/willing to afford a team of LeBron, Wade, Bosh, etc. (absent, of course, substantial financial sacrifices by the players).

@paulpierce34 I told Wade I will **** his mom like how my man D. West did his mans. Thats why I got ejected
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he knows hes underpaid, i thought everyone knew he took less money so him bosh and wade could play together??? besides he makes millions in endorsements.

Did you read the article or any of what the economist said? We're talking about way more than a relatively small pay cut to make room for other signings. Regardless of the pay cut he accepted, he is worth considerably more to his team/owner and league than he's getting paid. Kevin Grier (The economist) featured on NPR, argues his market value is closer to 40 million rather than the 17.5 million he curently makes.